GNU under fire over economic reforms as Investment drops

South Africa’s economy grew by just 0.1% between January and March, Statistics South Africa announced on Tuesday. 

The GNU, formed after the 2024 elections. includes the Democratic Alliance, Inkatha Freedom Party, Patriotic Alliance, GOOD Party, Pan Africanist Congress, Freedom Front Plus, United Democratic Movement, RISE Mzansi, and Al Jama-ah.

North-West University economist Waldo Krugel said that the drop in investment and inventories is a sign of economic fragility.

Gross fixed capital formation fell by 1.7%, shaving 0.2 of a percentage point off GDP. The biggest drags came from declines in residential buildings, machinery, construction works, and transport equipment, all pointing to weak investment appetite.

There was also a R9 billion drawdown in inventories, driven by large stock declines in the transport, trade, manufacturing, finance, and personal services sectors.

Net exports also weighed on growth, contributing -0.3 of a percentage point, despite a 1% rise in exports, largely driven by vegetable products, vehicles, and mineral goods.

Krugel warnes that the slowdown in GNU reforms may be a bigger drag on the economy than global uncertainty.

"We saw spending on transport, that’s reflected in the Q1 new vehicle sales figures, as well as food and beverages, restaurants and hotels, and health. This may have been supported by last week’s repo rate cut.

"What’s really concerning, however, is the contraction in investment spending. While international uncertainty played a role, exports did contribute positively to growth.

"I believe the bigger issue is the loss of momentum in GNU reforms. And with June marking the end of the second quarter, there’s concern because April and May haven’t shown stronger performance either.

"We’ll need a significant turnaround to reach 1.5% growth for the year,” said Krugel.

Standard Bank economist Elna Moolman added that private sector fixed investment is at its weakest levels since 2021.

"Fixed investment contracted in the first quarter, with private sector fixed investment at its weakest level since 2021, a worrying sign for expanding capacity and employment in the economy.

"While the slight growth in Q1 is a relief, it doesn't eliminate concerns about downside risks to this year’s economic outlook.

"The first quarter was marked by exceptionally high uncertainty, both globally and domestically, but we do expect some improvement in growth as the year progresses,” said Moolman.

FNB Senior Economist Thanda Sithole said while political uncertainty is easing, structural reforms must now take centre stage.

"Inventory drawdowns continued, and the trade balance narrowed, with net exports subtracting 0.3 percentage points from GDP growth.

"While inflation remains contained and the SARB has eased policy by 100 basis points since the peak of the last hiking cycle, with one more cut expected before year-end growth risks persist. Manufacturing remains in contraction, and business confidence will be key to unlocking investment.

"Political uncertainty around the GNU appears to be settling, and deeper structural reforms are now essential to drive long-term recovery.

"At this stage, we maintain our 1.3% growth forecast for 2025, with growth expected to gradually rise towards 2% by 2027,” he said.

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